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Insight & Intelligence : Dec 6, 2011
European Biopharma Firms Struggle to Achieve Healthy Growth in Ailing Economy
Between the chilly financial climate in Europe and the U.S. capital markets being tight, companies are unsure of near-term growth.!--h2>
The economic news from Europe is not good. On November 10, the European Commission predicted annual gross domestic product growth of just 0.5% for 2012: “Growth has stalled in Europe, and there is a risk of a new recession,” Olli Rehn, the commission’s vp for economic and monetary affairs, said in a statement.
The World Bank has predicted that Europe’s ongoing debt crisis will dampen Asian economic growth in the coming year, from an 8.4% GDP increase projected for China to increases of 7.8–8.2% for the “developing East Asia” region, which excludes such powerhouses as Japan, Hong Kong, Taiwan, South Korea, Singapore, and India.
Europe’s woes have also rippled into U.S. financial markets. That has begun translating into bad news for smaller European biotechs scrambling to raise capital in the U.S., according to the head of a broker-dealer and investment bank specializing in biotech, pharma research, and medical devices. “European biotech companies were dysfunctional to begin with because of their inability to really meaningfully invest in their own companies. They always look to access the American capital markets,” Stephen G. Brozak, president of WBB Securities, told GEN.
“Now that the American capital markets have shut down, it makes it twice as problematic for European companies. The only thing that matters to investors is, are you profitable now or will you be profitable in 12 months?”
The situation, he said, threatens the health of millions in Europe and the U.S. If biopharma companies don’t invest in new drugs, they can’t prosper, let alone save lives. “We’re facing a nuclear winter in biotech advancement. People on both sides of the pond are going to start dying from diseases that they haven’t died from in 50 years—think more like pneumonia, or bacterial infections, or bacterial co-infections.”
Also watching events closely are two large European companies, one focused on drug development, the other on tools and technologies. Both recently discussed with GEN the continent’s challenges and how they have worked to surmount them.
“It is very difficult to predict any specific consequences, but we maintain our monitoring of the situation in the different countries,” said Mads Kronborg, a spokesman for H. Lundbeck.
Impact on Pharma
European economic sluggishness was one of two factors cited by Lundbeck for the anemic 1% growth of its European revenues, to DKK 1.934 billion (about $347.92 million) from DKK 1.91 billion (almost $344.3 million). The other factor was a revenue decrease for one of the company’s key drugs, Cipralex® for mood disorders, due to generic competition and price cuts in some markets.
Several European nations that oversee state-run healthcare systems have scrambled to contain the rising costs of drugs by freezing or cutting prices. Germany, for example, last year raised the discount manufacturers must offer state health insurers from 6% to 16% and also froze drug prices for three years. The German Pharmaceutical Industry Association (BPI) said the higher discount cost the industry €1.5 billion (just over $2 billion) in 2010.
Also last year, the German government limited the launch price set by manufacturers for new drugs to one year, with the exception of orphan drugs. After that, first-year officials will cap the price insurers must pay based on the drugs’ benefit to patients.
“As the price cuts can be seen as an indirect result of weak public economies and political reactions, you can say that both this and more Lundbeck-specific events have had an impact,” Kronborg said. He said Lundbeck plans to reduce that impact by launching new medicines and growing two existing products in Europe: Ebixa® for symptomatic treatment of Alzheimer disease and Azilect® for Parkinson disease.
In 2012, Lundbeck also plans to expand the European reach of Sycrest® for manic episodes associated with bipolar I disorder by launching the drug “in several major European markets during the next six months, including the U.K., Spain, and Italy.” Sycrest is already available in Denmark and Germany.
“In the coming years we hope to be launching a number of new medicines including nalmefene for the treatment of alcohol dependency,” Kronborg said. Lundbeck plans to submit an MAA for nalmefene by year’s end.
Consequences for Tool-Focused Firms
Qiagen said it has mostly been able to weather Europe’s economic storms. Its quarterly net income shrunk 4% when measured at constant exchange rates, to $56.3 million from $58.8 million, despite a 5% rise at constant exchange rates in net sales to $288.9 million from $274.3 million. The company cited higher spending on sales and marketing for its recently acquired Cellestis and Ipsogen portfolios.
Europe accounts for 33% of sales from the combined region that includes Africa and the Middle East. During Q3, the region’s sales rose 15% at constant exchange rates compared with third quarter 2010. The company cited its rollout of the QIAsymphony RGQ automation system and higher sales among molecular diagnostics and academic customers in Northern Europe.
“The global rollout of this system is progressing very well, and we are on track to reach our goal of 550 installed systems by the end of 2011, creating significant opportunities for consumables sales,” Qiagen spokesman Przemek Jedrysik told GEN.
He said the company sees the strongest demand for the the QIAsymphony platform coming from diagnostic laboratories. “We believe that the QIAsymphony is particularly attractive for scientists in areas close to the patient and clinical research, and this is where you would typically see the strongest demand,” Jedrysik explains. “But we also register demand in other customer classes and actively target the academic and pharmaceutical research market.”
Another factor driving European sales, according to Jedrysik, was the ongoing effort across the EU to standardize the marker set used in human ID testing to facilitate data exchange between national DNA databases.
“While the degree of implementation varies across countries, this initiative and the corresponding shift to novel methods opened up new market opportunities that Qiagen effectively addressed with a range of tailored assays for human ID applications. The uptake of these products has been very good, and we believe that we can continue to grow our market share in forensics as the harmonization efforts continue,” Jedrysik added.
Across the continent, as in the U.S., however, academic customers delivered only low single-digit sales growth for Qiagen. The company blamed this performance on increasing budget uncertainty and austerity measures drying up public grant funding.
In a reflection of the continent’s debt challenges, Qiagen said demand for its products in southern Europe was lower than in northern Europe. “In general, the European market is quite diverse, so you won’t necessarily see the same development patterns in different countries.”
It was Prince Metternich, the influential 19th century European statesman, who famously said, “When France sneezes, Europe catches a cold.” After a half-century of marrying their economies and some of their political structures, it is indeed Europe that is feeling the proverbial chills under the strain of continued economic sluggishness in the U.S. and especially crushing debt by Greece, Italy, Portugal, and Spain.
On November 20, Spanish voters responded to austerity measures by replacing the governing Socialist majority in Parliament with opposition conservatives. This happened just a few days after Greece replaced its Socialist prime minister with a former banker in a power-sharing arrangement.
During 2011, eight European nations changed political leadership either mostly or partially due to the debt crisis: Denmark, Finland, Greece, Ireland, Italy, Portugal, Slovakia, and Spain. The changing of chairs among political leaders is unlikely over the coming year to stop European economies from plunging into recession or at least getting close to it. As a result, the continent’s stronger life science companies will be hard-pressed to avoid being taken down with those economies.
Alex Philippidis is senior news editor at Genetic Engineering & Biotechnology News.
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